Article 10. ROYALTIES — U.S. Income Tax Treaty

The existing Convention provides that royalties derived from sources within one of the Contracting States by a resident of the other Contracting State shall be exempt from tax by the former Contracting State. The pro posed Convention continues this ex emption for royalties.

The term “royalties” is defined to include (a) payment of any kind made as consideration for the use of,

article does not (as does the existing Convention) provide for an election by the resident to compute his tax on such income on a net basis since, for example, under the internal laws of the United States this can be done. See sections 871 (d) and 882(d) of the Internal Revenue Code. The income referred to in this article includes gain from the sale or exchange of real property or natural resource rights, but does not include interest on mort gages and similar instruments. The latter type of income is covered by Article 9 (Interest).

This article sets forth the same gen eral rule as that found in the OECD Model Convention except that the Model Convention is not restricted to real property but instead deals with the broader term “immovable prop erty.”